Reply to: Does BN66 matter?

[DonkeyRhubarb]

It is possible there are other similar cases out there, but certainly IR35 isn't one of them; there is way too much case law in place to doubt the intent of the legislation.

Agreed.

If BN66 does set a precedent then this is the sort of thing one could expect:
http://www.taxation.co.uk/taxation/a...-repo-loophole

[LisaContractorUmbrella]

The other reason an IR35 retrospection would be a non-starter is the immense difficulty in "clarifying" it. A government minister said, very early on, that no clarification was necessary. A question was asked in the House of Commons, pointing out that the uncertainty over whether you're affected or not was causing difficulty for tax-payers. "There is no uncertainty - it's quite clear", said Dawn, "if you are caught by this legislation, you have to pay it".

[smalldog]

Which goes to show just how stupid that woman really is. The question she was asked was "How do you tell if you're caught?". 12 years on and we still don't have an answer.

Which is how I ended up in the scheme in the first place, the scheme gave me a level of certainty in what was otherwise at the time a very uncertain IR35 infested world.

Personally I think its the thin end of the wedge, retro case law may not be used widespread but Im pretty sure HMRC will pull it out of their back pocket in the future to help target other low hanging fruit, who and when is anyones guess.

Ive been out of the scheme for 5 years and have been LTD, i just know whats going to happen though....We will lose BN66 appeal in the SC and then HMRC will go back over LTD's and pop some new retro rule in place to get me not only for using the scheme but for the time Ive been in an LTD too!!!! call me a pessimist. I can just see it.

[malvolio]

"There is no uncertainty - it's quite clear", said Dawn, "if you are caught by this legislation, you have to pay it".

Which goes to show just how stupid that woman really is. The question she was asked was "How do you tell if you're caught?". 12 years on and we still don't have an answer.

[NotAllThere]

IR35 was anti-avoidance legislation, closing what HMRC/Labour perceived as a loophole.

Many people are now exploiting loopholes in IR35 itself to circumvent it.

On this basis, HMRC would no doubt argue that it was ripe for retrospective clarification so it achieved its purpose ie. what was originally intended.

It's only on a practical level, and because it would be a PR disaster, that it would be a total non-starter.

The other reason an IR35 retrospection would be a non-starter is the immense difficulty in "clarifying" it. A government minister said, very early on, that no clarification was necessary. A question was asked in the House of Commons, pointing out that the uncertainty over whether you're affected or not was causing difficulty for tax-payers. "There is no uncertainty - it's quite clear", said Dawn, "if you are caught by this legislation, you have to pay it".

[malvolio]

I think the justification for the BN66 retrospection is also its biggest weakness if you try and apply it elsewhere. The "correction" was to some wording that was ambiguous, but the intent of the underlying legislation - basically, that no tax due elsewhere should not mean that no tax is due here as well - was sufficiently prersuasive to make the retropective clarification supportable. That is a long way away from changing the intent of the original ruling, which is what people are assuming BN66 implies may happen.

It is possible there are other similar cases out there, but certainly IR35 isn't one of them; there is way too much case law in place to doubt the intent of the legislation.

FTAOD I've always said that while the BN66 ruling was always likely to be accepted by the courts, its effect should not have been applied prior to the recent change.

[sal626]

The dangerous thing about BN66 is that a win for HMRC will set a precedent. They may not be planning to apply retro for anything else. And they may never do, but it provides them an option (backed by case law).

Who’s to say they will never use it in the future?

[OnYourBikeGB]

At 100% + interest + 2%, it's already pretty ruinous, although the government are increasing that to 200% for certain cases, so that measure already exists.

I didn't know about the 200% penalties, that's interesting, but I'm not surprised. I was thinking along the lines of minimum penalties etc, so the could make pursuing even more marginal cases worthwhile, heavy penalties if you dispute their demand and lose etc, things like that. But it's conjecture of course.

[DonkeyRhubarb]

Retrospection for IR35 probably isn't quite so far fetched, but the problem is implementation. Each case has to be argued on it's merits. The problem with BN66 is that you have herded yourselves into collective groups that make a juicy target for HMRC.

IR35 was anti-avoidance legislation, closing what HMRC/Labour perceived as a loophole.

Many people are now exploiting loopholes in IR35 itself to circumvent it.

On this basis, HMRC would no doubt argue that it was ripe for retrospective clarification so it achieved its purpose ie. what was originally intended.

It's only on a practical level, and because it would be a PR disaster, that it would be a total non-starter.

[centurian]

On the subject of IR35, while they may not be able to apply it retrospectively (for political reasons), there is nothing to stop them, for example, increasing penalties to a ruinous level.

At 100% + interest + 2%, it's already pretty ruinous, although the government are increasing that to 200% for certain cases, so that measure already exists.

Whatever size of people's BN66 CN's, I understand that the total amount paid to the scheme and HMRC works out at roughly the same as if you had gone umbrella in the first place. A 100% penalty on IR35 will leave you considerably worse off.

[centurian]

Personally I agree with those who say it's scaremongering to suggest that IR35 could be amended retrospectively.

Again the voice of reason.

We hear it less often now, but the claim that general taxation rates could be retrospectively changed is just pure 100% tulip. Retrospection will never affect the masses for one simple reason - there's no need to. If the government wants to take more money from the masses, it just puts up tax rates (which is exactly what the government have done with VAT etc.)

Retrospection for IR35 probably isn't quite so far fetched, but the problem is implementation. Each case has to be argued on it's merits. The problem with BN66 is that you have herded yourselves into collective groups that make a juicy target for HMRC.

[OnYourBikeGB]

I think it has quite a significant meaning. I don't think the judgements handed down can be purely regarded as applying to retrospective legislation. Based on Parker they are a green light for HMRC to take extreme measures to tackle legal tax avoidance where a taxpayer has sought to lower their liability below that normally expected. But what does that mean? It's open to their interpretation. I know many think that the BN66ers (I'm one) were taking the proverbial, but this has wider implications. What is more worrying is that the judiciary are to some extent washing their hands, and there is no legal defense.

On the subject of IR35, while they may not be able to apply it retrospectively (for political reasons), there is nothing to stop them, for example, increasing penalties to a ruinous level. It just needs to be signed off by Parliament, and they have shown they are prepared to use any means possible to do that. I suspect with Labour, they wouldn't even have to try to hard. Remember that IR35 is the exact opposite of what Parker claimed, that the BN66 scheme gave an unfair competitive advantage to it's users. Under IR35 an unfair disadvantage was imposed on contractors who then found it harder to compete with large consultancy firms. HMRC has shown that they want to define fairness as that what brings them in the most revenue, with the least political consequences, and the rights to challenge this are being stripped away.

The most worrying thing about BN66 for the business community is not so much retrospection, it's the lack of clarity, lack of limitation and the removal of a check to the power of HMRC. And that's why it's significant, imo.

[DonkeyRhubarb]

Personally I agree with those who say it's scaremongering to suggest that IR35 could be amended retrospectively.

Too many people would be affected and there would be uproar. Also, unlike the DTA scheme, it would involve hundreds of thousands of individual re-assessments which would be totally impractical.

Maybe BN66 was just a one-off and we'll never see the likes of it again.

On the other hand, if Labour ever got in again, the temptation to introduce more retro taxes may be too hard to resist.

[Mister Clark]

That’s what I thought.

I'm LTD and would guess I approx retain 82% of my companies income which isn't much less that people using schemes. What happens is HMR&C decides I'm taking the Michael and I now owe unpaid personal tax, plus interest plus fines?

I have a certain amount of sympathy for those hit by BN66; personally I would never have touched such a scheme with a barge poll however I understand why many did (introduction of IR35 being one of the main drivers).

The problem is at the time what they we're doing *appeared* to work (not going to go into it in this thread but there are internal HMR&C documents to support this position), just as LTD 1 man bands appear to work as an efficient tax vehicle for contractors right now.

What happens if HRM&C turn round and say we were using an artificial mechanism (no risk, only one income stream etc) to avoid tax and retrospectively tax us using MP and PwC as their precedent?

I think it highly unlikely, but that doesn’t mean it wont or cant happen and to think it doesn’t effect every person or company working in this country regardless of their trade or company setup is naive on many levels IMHO.

[NotAllThere]

It sets a precedent. While all the politicians and judges etc. will say - ah, it's only in this particular case where they really were taking the piss, they should have known etc. etc., so you don't have to worry, you only have to look at S660A to know that in a few years, an HMRC inspector might have a bright idea to exploit this precedent further, and widen its applicability..